84 N.E.3d 867
Mass. App. Ct.2017Background
- Celanese faced numerous asbestos and chemical personal-injury suits and terminated prior defense cost‑sharing agreements, seeking coverage under OneBeacon general liability policies in April 2009.
- OneBeacon offered to defend Celanese "without a reservation of rights," waive coverage defenses, indemnify up to policy limits, and assume control of the defense (including selecting counsel).
- Celanese refused to cede control, citing an alleged conflict of interest, and retained its long‑standing counsel; OneBeacon sued for declaratory relief in March 2010.
- In May 2011 the Superior Court ruled OneBeacon had the right to control the defense because it had offered to defend without reservation and found Celanese did not breach its obligations by refusing control.
- The Superior Court nevertheless awarded Celanese $2,435,921.49 for defense costs Celanese incurred from April 13, 2009 through May 27, 2011; OneBeacon appealed.
Issues
| Issue | OneBeacon's Argument | Celanese's Argument | Held |
|---|---|---|---|
| Does an insurer that offers to defend without a reservation of rights have the contractual right to control the insured's defense? | Yes — an unreserved defense gives the insurer the right to control and select counsel. | No explicit contest; Celanese emphasized limits on that control when conflicts exist. | Held for OneBeacon: offer without reservation permits insurer control. |
| May an insured justifiably refuse insurer control when a "sufficient" conflict of interest exists? | If no sufficient conflict, insured may not refuse control and recover fees. | An insured may refuse and obtain independent counsel at insurer expense when a sufficient conflict exists. | Held: insured may refuse only if a sufficient conflict exists; otherwise refusal is unjustified. |
| Did Celanese demonstrate a sufficient conflict of interest to justify refusing OneBeacon's control? | OneBeacon: prior disputes and business incentives do not show a conflict that would compromise defense. | Celanese: prior c.93A verdict, differing defense strategies, and trial statements show OneBeacon would favor its interests over Celanese's. | Held for OneBeacon: Celanese failed to show a sufficient conflict. |
| Is OneBeacon liable for defense costs Celanese incurred while litigating control (Apr 13, 2009–May 27, 2011)? | No — having offered an unreserved defense, OneBeacon is not liable for fees incurred after an unjustified rejection of that defense. | Yes — Celanese should recover costs incurred litigating and defending while the right to control was disputed. | Held for OneBeacon: judgment awarding those defense costs vacated; OneBeacon owes no reimbursement for that period. |
Key Cases Cited
- Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 439 Mass. 387 (Mass. 2003) (an insurer defending under a reservation of rights cannot both reserve and control the defense; insured may require relinquishment or reimbursement)
- Three Sons, Inc. v. Phoenix Ins. Co., 357 Mass. 271 (Mass. 1970) (insurer that withdraws reservation and defends may control defense)
- Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117 (Mass. 1991) (summary judgment standard cited)
- Magoun v. Liberty Mut. Ins. Co., 346 Mass. 677 (Mass. 1964) (insurer's discretion under duty to defend is not unlimited)
- Northern County Mut. Ins. Co. v. Davalos, 140 S.W.3d 685 (Tex. 2004) (insured may reject insurer control when sufficient conflict exists; otherwise cannot recover independent counsel fees)
- Mount Vernon Fire Ins. Co. v. VisionAid, Inc., 477 Mass. 343 (Mass. 2017) (contract language governs scope of defense; insurer's right to control defense recognized)
- Murach v. Massachusetts Bonding & Ins. Co., 339 Mass. 184 (Mass. 1959) (insurer must act in good faith in settlement decisions)